The Chinese central government is considering a plan to reduce the income tax burden, especially for those with middle and low incomes.

The plan, said to be the largest reform since the current scheme took shape in 1994, will reduce the amount of tax and simplify the progressive tax scheme currently comprised of nine levels, Yang Zhizhong, a member of a government think tank, the Chinese Academy of Social Sciences, told the Beijing-based Legal Evening News yesterday.

But he declined to comment on exactly how much the reduction will be or how many levels the new scheme will contain.

The Economic Observer News quoted an income tax official as saying that the new plan could be implemented as early as next year, when China will widen the scale of income levels without raising the current tax threshold.

The measures are expected to reduce the income tax burden across the country by several billion yuan.

The official said he had advised raising the first level of taxable earnings - subject to 5 percent tax - from 500 to 2,000 yuan, and the second level of 10 percent from 2,000 to 20,000 yuan.

"In this way, most people with middle and low incomes will be covered by the first two levels," he said.

"Most countries have about four or five levels of income tax rates, and it's obviously too much for China to have nine," he added.

Under the proposed scheme, income tax for people earning 3,800 yuan a month after deduction of welfare fees will be reduced from 155 yuan to zero, while for those earning 6,800 yuan, the tax will be 240 yuan instead of 595 yuan.

The government is also working on a long-term reform in which the amount of income tax will depend on the number of people supported by a salary.

"But the goal may not be realized in the next five years because the tax bureau will have difficulty in collecting information about a family's marriage situation and their bank accounts," the official said.

Officials previously focused on raising the tax threshold, which is 2,000 yuan at present. But the proposal was turned down as the effect was seen to be limited.

The most recent efforts in March 2008 by the government to adjust income tax to make up the widening gap between rich and poor included raising the tax threshold from 1,600 yuan to 2,000 yuan.

(Shanghai Daily December 13, 2010)